SEBI Uncovers Sophisticated Financial Frauds Using Forensic Audits: Chairman T K Pandey

Pandey detailed several disturbing cases unearthed during recent investigations. One involved a listed firm transferring assets to a subsidiary, which then secured loans against those assets

Pandey also exposed the misuse of preferential share allotments

Source : PTI

Financial irregularities in India's capital markets are growing in complexity, often involving sophisticated schemes to sidestep regulatory oversight, according to Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey.

Speaking at the Future Proof Forensics 2025 event in Mumbai on Friday, Pandey underscored SEBI’s intensified use of forensic audits to detect and unravel such violations. “We must safeguard market integrity, the foundation that fuels investor participation and sustains capital formation,” he said.

Pandey detailed several disturbing cases unearthed during recent investigations. One involved a listed firm transferring assets to a subsidiary, which then secured loans against those assets to repay debts linked to the promoter. “SEBI has unearthed transactions where the listed entity transferred assets to its subsidiary. The loan obtained by the subsidiary against these assets were then used to repay the outstanding loan of a promoter linked entity,” he said.

In another case, circular transactions between a company and several lending entities were used to inflate financial statements. Funds or assets were later siphoned off via related-party transactions masked as routine business operations.

Preferential Allotments Misused, Retail Investors At Risk

Pandey also exposed the misuse of preferential share allotments. He cited a case where funds raised through such allotments were funneled back to the allottees themselves through elaborate, multi-layered routes. “Forged bank statements were submitted to SEBI to show receipt of funds by the company. The statutory auditor also failed to report the structured circulation of funds,” he revealed.

He warned that misleading disclosures are sometimes timed just before the expiry of the lock-in period on preferential shares, allowing early investors to exit profitably—often at the expense of retail investors. “These are egregious cases. I'm not saying this is a generalised phenomenon... just certain examples,” Pandey clarified.

SEBI’s Forensic Push To Curb Market Misconduct

The SEBI Chairman stressed the severe impact such malpractices can have on market trust and fairness. He reiterated the regulator’s commitment to leveraging forensic tools and audits to detect and act against fraudulent conduct. “The negative impact of such financial frauds on the securities market is tremendous,” he said, adding that robust forensic scrutiny remains central to SEBI’s enforcement approach.

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